DCIT (EXEMPTION), GHAZIABAD vs. M/S. UTTARANCHAL STATE SEED ORGANIC PRODUCTION AGENCY, DEHRADUN

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ITA 2282/DEL/2017Status: DisposedITAT Delhi18 October 2017AY 2013-146 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal noted that the assessee was granted exemption u/s 10(23C)(iv) and there was no indication that this exemption was withdrawn. The third proviso to Section 10(23C)(iv) requires funds to be applied or accumulated wholly or exclusively for the objects of the society, and if accumulation exceeds 15%, it should not exceed 5 years. It also mandates that funds should be invested only in modes specified in sub-section (5) of Section 11. The CIT(A) observed that deposits in scheduled banks are a prescribed mode under Section 11(5). The balance sheet as of 31.03.2013 showed that the entire excess of income over expenditure of Rs. 2,44,03,546.92 was carried to the corpus funds, and bank deposits increased by Rs. 2,82,67,322.52. The auditor confirmed these investments in Form 10BB. Since the AO did not provide any evidence of violation of accumulation and utilization conditions, the addition made by the AO for taxing the surplus above 15% was held unjustified. The CIT(A) also noted that the assessee had withdrawn the plea regarding disallowed depreciation of Rs. 13,22,303/-. However, considering the funds were invested in scheduled bank deposits, it was treated as part of the accumulated surplus invested in specified modes, thus having no tax implications. The Tribunal found no infirmity in the CIT(A)'s findings and dismissed the Revenue's grounds of appeal.

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for Assessment Year 2013-14. The assessee, a society registered under the Societies Act and granted registration u/s 12A and exemption u/s 10(23C)(iv) of the Income Tax Act, 1961, had claimed exemption. The Assessing Officer (AO) made additions of Rs. 13,22,303/- on account of disallowed depreciation and Rs. 34,24,224/- on account of accumulation of income, holding that the application of income was less than the expenditure. The assessee argued that its unspent funds were part of the corpus and invested in scheduled banks, complying with the provisions of Section 10(23C)(iv). The CIT(A) deleted both additions, finding the assessee compliant with the exemption provisions.

What were the issues?

1. Whether the CIT(A) erred in law and facts in deleting the addition of Rs. 13,22,303/- made on account of accumulation of income? 2. Whether the CIT(A) erred in law and facts in deleting the addition of Rs. 34,24,224/- made on account of accumulation of income? Assessee's Contentions (as presented before CIT(A)): The assessee argued that it was claiming exemption u/s 10(23C)(iv) and that its cumulative unspent funds were for the sole purpose of promoting seed certification as per its objectives. The unspent funds were kept as part of the society's corpus and invested in term deposits in scheduled banks, complying with the third proviso to Section 10(23C)(iv). The assessee contended that the AO erred by applying the calculation for exemption u/s 12AA, where accumulation over 15% is disallowed, whereas it was claiming deduction u/s 10(23C)(iv) and had complied with all its provisions, including obtaining an audit report in Form 10BB. Revenue's Contentions: The Revenue relied on the assessment order. No specific arguments were recorded for the Revenue before the Tribunal, other than reliance on the assessment order.

Which sections of the Income-tax Act were involved?

Section 10(23C)(iv),Section 12A,Section 12AA,Section 11(5)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI

Before: MS. DIVA SINGH

Appellant by None Respondent by Sh. T. Vasanthan, Sr. D.R. Date of hearing 23-08-2017 Date of pronouncement 0500500500 1818-10-2017 O R D E R PER DIVA SINGH, J.M. : The present appeal has been filed by the Revenue assailing the correctness of the order dated 31.01.2017 of CIT(A) Dehradun pertaining to 2013-14 assessment year on the following grounds:- “The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in allowing the appeal of the assessee after deleting the addition of Rs. 13,22,303/- made an count of accumulation of income. The learned Commissioner of Income Tax (A) has erred in law on facts in allowing the appeal of the assessee after deleting the addition of Rs. 34,24,224/- made an account of accumulation of income. Appellant craves leave to modify / amend or add any one or more grounds of appeal. The order of learned CIT(A) be cancelled and the order of the AO restored.

2. At the time of hearing, no one was present on behalf of the assessee. The appeal was passed over. In the second round also no one was present. However, the considering the material available on record, it was considered appropriate to proceed with the present appeal ex parte qua the assessee appellant on merits after hearing the learned Sr. DR.

3. The assessee is a society as per record registered under the Societies Act with Registrar of Society U.P. vide certificate No. 118/2001 dated 17.4.2005 which was renewed for a period of five years with effect from 16.4.2011. The assessee society was granted registration u/s 12A of the Act, by the Commissioner of Income Tax, Dehradun vide order dated 25.07.2006. The assessee society has also been granted exemption u/s 10(23C)(iv) of I.T. Act, 1961 by CCIT, Dehradun vide order dated 17.03.2008. The objectives of the society are to certify seeds of any notified kind or varieties or crops which are eligible for seed certification under the Seeds Act. The assessee has claimed exemption u/s 10(23C)(iv) of I.T. Act, 1961. 4. A perusal of the assessment order shows that the Assessing Officer took note of the fact that the assessee had shown gross receipts at Rs. 8,76,,87,493/- and claimed application of income at Rs. 7,12,33,389/-. The Assessing Officer considering the record hold that amount expended was Rs. 6,97,87,842/- and that there was a taxable surplus of Rs. 47,46,527/-. The assessee carried the issue before the CIT(A). The detailed submissions have been extracted in the said order at pages 2 to 4. Apart from that the following oral submissions as extracted in para 7 and 8 were advanced before the CIT(A). The same are reproduced hereunder:- “Shri Shobhit Jain, CA and Shri D.P. Ghildiyal, Accounts Officer appeared on behalf of the assessee and submitted that the assessee was claiming exemption u/s 10(23C)(iv) and cumulative of unspent fund was for the sole purpose of promotion of seed certification as per the objectives notified in the exemption notification. On consideration of the arguments of the assessee’s counsel, the counsel was asked to furnish:- 1. Copy of Balance Sheet and Audit Report.

2.

Details of investment made in bank deposits 3. Registration certificate evidencing the registration u/s 10(23C)(i. Section 12 of the I.T. Act, 1961. While filing these submissions, it was submitted that the society had kept its cumulative funds as part of the corpus of the society with investment in the form of term deposit in scheduled banks in compliance to clause (a) & (b) of third proviso to section 10(23C)(iv). It was submitted that the proviso to section 10(23C)(iv) did not specified the modes of advances to be kept. Further, it clearly specified that all the cumulative funds needs to be remain with the society and in compliance of the same the society transfer all its surplus to the corpus of the society and this could be verified from the audited financial statement. It was submitted that the AO had erred in her judgment by adopting the exemption calculation u/s 12AA where the accumulation of over 15% was disallowed. It was submitted that both the society was having registration under section u/s 12AA of the I.T. Act, 2016. However, it was claiming deduction u/s 10(23C)(iv) and it had complied with all its provisions including obtaining audit report in Form 10BB.” 5. Considering these submissions, the CIT(A) proceeded which is held as under:- “I have duly considered the facts and circumstances of the case. The assessee has placed on record a copy of the order granting it exemption u/s 10(23C)(iv) of the I.T. Act, 1961 dated 17.03.2008. It has been stated, in the said order that the approval does not require renewal unless it is withdrawn as per the provisions of the I.T. Act, 1961. The AO has not brought on record any indication to the effect that this exemption has been withdrawn to the assessee society. It is observed from a perusal of section 10(23C)(iv) that as per the third proviso to section 10(23C)(iv), it has been provided that the society should apply its funds or accumulates wholly or exclusively for the objects for which it is established and in a case where the accumulation of the amount exceeds 15%, sur accumulation should not exceed the period of 5 years. It has also been provided - the society should not invest or deposit its funds other than any assets held by trust or institution as part of its corpus, in any other manner than one of the forms modes specified in sub section (5) of section 11. Deposit in any account with the scheduled bank or the cooperative society engaged in carrying on the business of bank is one of the mode prescribed under subsection (5) of section 11. It is noticed from the audit report that the surplus/deposit of the society is transferred to the corpus funds of the society. It is also noticed from a perusal of the balance sheet of the assessee as on 31.03.2013, that the entire excess of income over expenditure of Rs. 2,44,03,546.92 has been carried to the corpus funds and it is also noticed that the bank deposit of the assessee society have gone up by Rs. 2,82,67,322.52. Thus, it is quite clear that the accumulated funds invested in the modes as specified in section 11 sub-section 5 of the I.T. Act, 1961 which has also been confirmed by the auditor in the audit report in Form No. 10BB. As the AO has not brought anything on record to suggest any violation of the conditions governing accumulation and utilization and as no such eventuality emerges from the audit report also, it is hold that the addition made by the AO in taxing the surplus above 15%, without having regard to the fact that the assessee was entitled to the exemption u/s 10(23C)(iv) and was compliant with the provisions was not justified. In the circumstances, the addition of Rs. 33,24,224/- on account accumulated fund is held to be not justified. However, it is observed that the AO has disallowed depreciation of 13,22,303/- which is justified considering that the assessee is considering capital expenditure and capital advances as part of the utilization. Even, otherwise it is noticed that in the revised grounds of appeal

filed during the hearing, the assessee has withdrawn this plea. However, since the money so claimed to be deposited, has actually been invested in deposits in scheduled bank(which exceed the excess of income over expenditure as reflected in P&L A/c), it may be treated as a part or accumulated surplus invested in the specified modes and will not therefore have tax implications. In the result, the appeal is partly allowed.”

6. Though the learned Sr. DR relied upon the assessment order however no infirmity in the aforementioned finding has been pointed out by him. On a consideration of the peculiar facts and circumstances of the case and the reasoning of the learned CIT(A). I find that in the absence of any infirmity in the said order, the departmental grounds are not maintainable accordingly these are dismissed.

7. In the result, the appeal of the Revenue is allowed.

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